If we built the industry anew, research wouldn’t look like this

If we were to design Australia’s financial advice ecosystem today, from a truly clean sheet of paper, we would never structure research the way it is now. We would not outsource one of the most crucial governance functions – vetting investment products – to firms paid by the very issuers they assess. We would not allow platforms or independent financial advisers’ investment committees to rely on research reports they didn’t commission or pay for. We certainly wouldn’t tolerate a structure where form often trumps substance. Yet, here we are.

On its face, the current model appears robust: new managed funds are added to platforms or IFA-approved lists, assumed to have undergone rigorous assessments – operational resilience, governance structures, investment risk and performance are supposedly analysed. A slick research report from a known provider lends credibility. But often, that credibility is borrowed. Many of these reports were prepared for someone else – perhaps at the fund manager’s request – and later inserted into documentation as if they were commissioned specifically for due diligence. The result is paperwork masquerading as protection.

Regulators have been alert to these flaws for years. ASIC first flagged concerns about issuer-funded research back in 2004, proposing structural separation as early as 2011. By 2014, through RG 148, and again in 2024, ASIC demanded more transparency from platforms about how investment selections are made. A 2018 review uncovered how vertically integrated advice institutions are prone to structural bias – and this applies equally when research firms run parallel businesses such as consulting or model portfolio operations. The 2014 collapse of the van Eyk research house, which ventured into product manufacturing without adequate oversight, stands as a cautionary reminder of how quickly trust can evaporate.

Yet the flawed model endures. Platforms and IFA committees often opt for convenience and cost-efficiency over rigour. Genuine internal due diligence is expensive – rich, bespoke investment analysis can cost upwards of $30,000 a year per product – but borrowed reports are cheap and expedient. The problem is multiplied by diffuse accountability: no party clearly owns the end-to-end responsibility for product quality. And many boards and advisers are content if a research PDF lands in a file, regardless of its scope or date.

Meanwhile, platform businesses remain hugely profitable. Hub24, for instance, reported underlying EBITDA of $77.6 million for the first half of FY 2025 – up 41 per cent year-on-year – amplifying investor confidence in its automated model and operational leverage. Netwealth, too, is highly profitable, with average platform EBITDA margins among the highest in the sector. When your business is delivering market-leading margins, internal investment in a due-diligence team that costs tens of thousands seems more affordable – though that is less true for smaller IFA groups, despite their fiduciary role.

If we were building this sector from scratch, the blueprint would look very different. Every platform or IFA investment committee would commission its own research from firms free of issuer ties, paying directly and transparently for tailored analysis, and publicly disclosing scopes and limitations. That research would feed into independent due-diligence functions that report to risk or governance, not to sales or business development. Any unresolved concerns would result in exclusion. A robust, multi-source process – combining operational due diligence, manager interviews, liquidity and capacity testing, fee benchmarking, and performance attribution – would funnel into a single, accountable committee.

Moreover, product selection would be explicitly tied to real-world obligations. Platforms would link shelf inclusion to Design and Distribution Obligations and monitor live distribution data to ensure products are being sold to the right investors. IFA committees would align product suites to client-specific mandates and philosophies. External audit of the process – not the product – would occur annually, and plain-language rationales for product inclusion would be made available to advisers and clients.

This is not fanciful. ASIC’s renewed foray into conflicts guidance in 2025 creates a window for platforms and IFA committees to raise standards proactively. The move doesn’t require sweeping regulation – only the will to redraw the existing structure.

Because if we were truly starting over, none of us would have built research this way. We don’t need a clean sheet of paper. We simply need the courage to reset the contours of accountability.

Jamie Nemtsas is executive chair of the Brilliant Investment Group (BIG), a group of financial services companies comprising Wattle Partners, Atchison, Capital Outcomes and The Inside Network, the publisher of The Inside Adviser.

Jamie Nemtsas

Jamie Nemtsas is founder of advice firm Wattle Partners and the executive chair of The Inside Network.